What is a sharp offer or relative bid?

Sharp offersA “sharp offer” is also referred to as a “relative bid“. What this means is that the real estate purchase contract either does not have a specific price listed as the offering amount, or elsewhere in the contract there’s a clause that accelerates the price automatically based on other bids received by the home seller.  Often there is a cap to the amount the buyer is willing to pay.

Here’s one way that it could work:  a property gets, say, 20 offers.  The buyer who writes a relative bid puts into the contract that his or her offer will go to $5,000 more than the highest priced offer.  It could be any dollar amount or even a percentage.

Why would anyone in Silicon Valley or elsewhere even think of doing such a thing?

When the market gets very badly overheated, with lack of inventory, multiple offers, bidding wars and steeply rising prices on the pending and closed sales, some buyers begin to feel very desperate.  Not satisfied with simply giving up all of their contractual rights, they also give up their right to chose the ultimate sales price – more or less.

What are the risks involved with a sharp offer?

In addition to the obvious risks, an offer without a price may not be enforceable – it may not really be a contract at all because a contract must be specific to be binding.  Why should a seller take a non-binding, or possibly non-binding, offer?  Even emotionally, if the buyer doesn’t really know the price that he or she is offering, it’s about as solid as someone who’s writing a blind offer – they don’t really know what they are doing! (more…)

With dozens of offers on that house, why bother?

Why botherWhen the Silicon Valley real estate market gets into an overheated mode, like it is today, it creates strong emotional fallout on home buyers, some of whom have been dabbling with the idea of buying a home for a very long time – and they are just now coming to grips with the fact that the tables have been fully turned on them from the deep buyer’s market of 2010 and the year or two before.

Some buyers are getting angry about the overbids that go 25% over list price and up.  Others are sad, feel depressed that they “missed the market” opportunity of 12 or 18 months ago.  And others have a sense of hopelessness or “why bother”. Fear is also prevalent: “if I buy now, will it crash again tomorrow, or next week, or next year?”

Right now, the comps don’t count. What counts is competition. The homes getting the most offers are selling so stratospherically high that they are most unlikely to appraise to sales price. That creates anxiety for multiple reasons.

Recently I spoke to a buyer about the market heat here in the San Jose area, and my concern for them economically with the bunches of bids that some properties are getting.  She replied that if lots of people want that house, it bolsters the idea that the property will likely be desirable on a more normal market too, whereas a house or condo with few offers causes a loss of confidence.

Why should a buyer bother now?  That’s a personal question.  The numbers may not add up to the kind of sensible math you’d normally like to see.  But if you are buying a home for the long run – that is, you expect to be there 10 years or more – it may still make sense to purchase even if you have to fight hard and take some risks to be the winning bid.  Most of the time, that winning bid is the one where the most risk is taken. That’s pretty scary right now.

Interestingly, the same emotions are at the forefront when it’s a declining market and home buyers buy anyway. Why do they do that? It’s not about the money, it is about getting on with their life.

 

 

 

Is Silicon Valley real estate overheating?

A common buyer question right now is whether or not the real estate market in Silicon Valley is overheated, if we are experiencing “another bubble”.  If you visit open houses in places like Sunnyvale, Cupertino, and in many parts of the Peninsula, you may see droves of buyers and be convinced that the market is, in fact, overheated.

Silicon Valley encompasses a large area, primarily Santa Clara County and some of San Mateo County, but a few sections of neighboring counties as well. Generalizing about huge regions is tricky.  Overall, though, it is a deep seller’s market throughout Silicon Valley.  But there is a great deal of variation from one city or town to the next, as well as between ages of homes, quality of schools and neighborhoods, and price point.   Today we will focus primarily on a couple of statistics: the ratio of sales price to list price for houses in San Mateo and Santa Clara Counties, and ratio of new listings to sold and closed ones of houses in these counties.

First, though, a look at the two counties combined to show the broadest common real estate trends for Silicon Valley in relation to the sales price to list price ratio and “days to sell”.

 

Santa Clara County and San Mateo County sale price to list price ratio and average days to sell

Santa Clara County and San Mateo County sale price to list price ratio and average days to sell

 

The chart above gives a snapshot of the Silicon Valley market, which appears to have had a peak in about October – November 2012. likely reflecting sales 45-60 days earlier, when the days to sell hit a yearlong low.  Since that time, though, things appear to have calmed down.

New listings of houses for sale versus sold homes in San Mateo and Santa Clara Counties

A few days ago, before getting the stats for closed sales in January 2013, I wrote about the trends for new listings of houses in relation to the closed sales in Santa Clara County in late fall 2012.  What we were seeing was that homes in escrow were closing or finalizing the sales faster than new inventory was coming on the market.  The closings in January, though,reflecting sales which began in December, a trend reversal, back to a more normal ratio, in both Santa Clara County and San Mateo County.  December is often the softest month of the year, with few listings relative to the rest of the year and sales at lower price points.  Looks like this December followed that pattern to a point.  Have a look at the charts for both counties and notice the trend reversal, below.

 

New Listings vs Sold SCC Feb 2013 (Small)

Santa Clara County New Listings vs Sold Houses last 12 months

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Silicon Valley Real Estate Trends Update

How's the MarketSales are up even while inventory is critically low (off about 80% from a year ago, and Dec 2011 was off about 40% from the year before), pushing prices higher as demand outstrips supply once again. Homes that do sell are averaging at 102.6% of list price for houses to 104% of list price for condos.

Usually our winter season is a little quiet, but not this year – the market which usually emerges in February or March seems to be here already.

As of today, January 16, 2013, the months of inventory for Santa Clara County is less than one month for both houses and for condominiums and townhomes. I just ran the numbers in our MLS, MLSListings.com and here’s what we’ve got:

Houses for sale (not under contract) = 649
Homes sold & closed in the last 30 days = 753
Months of inventory = .86

Condos & townhouses for sale / available = 168
Condominiums & townhomes closed & sold in last 30 days = 277
Months of inventory = .60

The median and average sales prices are up by about 27-28% for houses year over year. For condos and townhomes, it’s about 30-32% year over year.

Loads more statistical information for San Jose, Los Gatos, Saratoga and all of Santa Clara County:

It is a very hot seller’s market in the San Jose area. Pull up the statistics for all of the county at http://www.popehandy.rereport.com. Read more articles and find statistics at a glance via the PDF version:
http://rereport.com/scc/print/Mary.PopeHandySCC.pdf

 

 

 

Overheated market, overheated emotions

Overheated MarketThe Silicon Valley real estate market is so overheated in many segments (some areas, some price points) that there’s a lot of exhaustion to be found among consumers, Realtors and others involved (inspectors, title company employees, etc.).  Why is that?

  • Home buyers in the San Jose area are finding that most of the time, they have to write a few offers before one can get accepted. The rejection is both disappointing and exhausting, and every successive attempt is stressful since most buyers understand that with multiple offer situations, the odds are against them.
  • Home sellers in Santa Clara County are finding it a challenge to work like crazy to make their property as close to ideal as possible, only to find that multiple offers either aren’t ideal (or still seem scary, if they are ideal) or perhaps they don’t come at all. Even in a hot market, not every home sells!  Some home owners work so hard at fixing up their house or condo to sell that they somewhat fall in love with it all over again…and that makes it hard to sell. Their pre-sale exhaustion also can make them prone to feeling overwhelmed.
  • Real estate agents or licensees are exhausted because there is so much URGENCY that it’s hard to get any down time (let alone a day off). Most real estate licensees  I know are really burned out – or very close to it – due to working 24/7 for the last 2+ months.  (Buyers are very time consuming and may require many many attempts before being successful in getting into contract. Sellers may have worries and find themselves needing a lot of reassurance – even when it’s not really urgent at all.)

Together with the extra stress of the market which changed so fast are a LOT of emotions (as well as mistakes that might not be made if everyone were calmer and better rested).  Buyers grieve when they lose the house.  Sellers worry that they sold too fast, too low, too easily.  Buyers, when successful, worry that they have overpaid (“buyers remorse“).  Agents are burning the candle at both ends and can find themselves a little frazzled too.  Sometimes when our clients have a bad day, they can make it contagious by yelling at us or otherwise being overly difficult because they are stressed. Even agents dealing with other agents can be a headache if the other one is upset, burned out, sloppy or emotional.

Time out!  What most everyone needs (myself included) is a breather.  Everyone needs a little time, a little down time, to feel a bit more human.  Take a day off. Decide not to answer the phone or email before or after set hours.  As for me, I’m going to work on that.  I hate to see email accumulate in my inbox, I feel like I have to address it right away (as if it were a text message about a house burning down).  But being in reactive mode, no matter who we are, is not so good in the long run. When the going gets tough, it’s more important than ever to get enough sleep, exercise (esp time away from the computer) and diversions.  Too much intensity can make for more friction, and in the long run, that is bad for the transaction, bad for our relationships and even bad for our own personal health.

So in this overheated, stressful market – let’s all try to step back enough so that we can clear our heads a little and keep a semblance of balance. It will make for better real estate transactions in the long run, no matter whether we are buying, selling, or assisting clients as realty professionals in the South Bay.

More reading:

Qualify The Advice You’ll Accept When Buying or Selling a Home in Silicon Valley

Impulsivity and caution in home buying